Investors Can Still Make Money in Retail Stocks

by Hilary Kramer | April 29, 2013 10:00 am

I absolutely love turnaround stocks, and I’ve had a lot of success investing in them through the years. These are the companies that have been beaten back, but are successfully reinventing themselves and gearing up for another great round. For retail stocks, it’s often re-branding or changing its target demographic.

So what about JC Penney (NSE:JCP[1])? They’ve been all over the news recently and are clearly trying to right the ship, starting with the termination of Ron Johnson, the former Apple (NASDAQ:AAPL[2])  executive who tried to implement a new business model but clearly failed.

The question is this: Does bringing back former CEO Mike Ullman put JC Penney on the road to a successful turnaround, or is it still a stock to be avoided? Put me in the “stay away” column. I think getting JCP back on track is a huge challenge that is sure to be a bumpy ride, one that I think is too risky to going along with. There’s an awful lot JC Penney has to do to become an attractive investment again, which I talked about in the video below.

Hilary Kamer interview[3]

JCP may be in danger of going the way of the dinosaurs, but there are some retailers worth investing in right now. Let me share three that I think are attractive:

Macy’s (NYSE:M[4]) has come a long, long way. Back in 2000, this company was written off for dead. But management turned the company around by lowering prices, producing quality products, and turning Macy’s into a staple store for clothing and accessory needs. Macy’s has been a solid company, delivering continued growth and strong profit margins, which has led to annual double-digit earnings growth. The company also pays a solid dividend yield of 1.8%. Macy’s has come a long way, and I don’t see this retailer slowing down anytime soon. To be honest, if JCP wants to succeed again, management would be smart to take a few notes from Macy’s.

Ralph Lauren (NYSE:RL[5]) is a company I’m sure you’re familiar with. They design, market and distribute premium lifestyle products in four categories: apparel, home, accessories and fragrances. The company has been around for more than 40 years and is one of the world’s most widely recognized families of consumer brands. I expect the stock to go higher as RL continues to create products that are stylish and reasonably priced.

RL is also ripe for expansion in the global luxury apparel markets. Management’s long-term goal is to increase the company’s exposure to Europe and Asia to eventually make up two-thirds of its total sales business, compared to the 38% of sales the two made up in 2012. RL’s e-commerce business also looks to be a strong catalyst, with analysts expecting the company to grow earnings at 14% over the next five years. The company’s well-made clothing and an international expansion plans make Ralph Lauren a good company to invest in.

Ted Baker (LON:TED. L[6]) is an international company, and one that you might not have heard of. Let me say up front that it’s only traded on the London Stock Exchange, but many brokerages allow investors to buy London stocks, so I wanted to at least mention this retailer that’s on the up-and-up. I see Ted Baker as a multi-year growth opportunity.

Because TED.L is only in 12 U.S. states, there’s a fantastic opportunity for them to get into more of the U.S. high-end department stores. While many European retailers have struggled and collapsed under the failing European economy, Ted Baker has seen good demand at home and overseas. I wouldn’t be surprised if it eventually becomes a household name for fashion here in the U.S. as well.

Given the economic struggles we’ve seen both globally and here at home in the U.S., investing in retail requires you to be very selective. JCP has a long way to go, too long for my liking. But Ralph Lauren, Macy’s, and Ted Baker are all worth a look.

  1. JCP:
  2. AAPL:
  3. [Image]:
  4. M:
  5. RL:
  6. TED. L:

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